National Association of Home Builders Discusses Economics and Housing Policy

Consumers positive about jobs growth in the year ahead

Consumer Sentiment returned to its upward trend in February, extending the gains in November and December of 2010 after a pause in January. The release of the University of Michigan Consumer Sentiment survey by Thompson Reuters indicates Consumer Sentiment index rose 3.3 points to 77.5 in February, its highest level in three years. The gain was concentrated in the current conditions index, which was up 5.1 points 86.9. The expectations index also rose, but a more moderate 2.3 points to 71.6.

The gain in consumer sentiment was mainly driven by consumers’ view of the employment situation, with the University of Michigan observing “… consumers anticipated significant gains in employment during the year ahead. The favorable jobs news completely dominated rising concerns about higher food and fuel prices.” However, they also note that “… consumers a skeptical about how much the overall state of the economy will improve in the year ahead, as the majority still expect overall economic conditions to remain poor even if improved.”

Consumers’ view of the housing market remains very positive, with the index of buying conditions for homes up one point to 154 in February. Over three quarters of respondents identified that they believe home buying conditions were good, with low prices (65%) and low interest rates (41%) the main reasons. For the past 18 months the index of buying conditions for homes has remained high, within a narrow band between 147 and 156. This is despite the wide fluctuation in new and existing home sales. Thus, while consumers view buying conditions as good, concerns about their job prospects and income growth have held back home buying decisions to-date. The recent improving view of the employment situation, together with the favorable view of home buying conditions, is expected to support stronger housing demand through 2011.